Explain how financial institutions serve the needs of consum

Solution

Financial markets are effective wholesale markets which are responsible for creating financial securities. The financial institutions help to provide financial services.
The financial system is considered a competitive system and it has the function of gathering amount in case of banks and large amounts for loans. The system acts effectively and directs the money for useful investment opportunities times for the businesses and corporations.

Banks, credit unions are considered as depository Institutions. They help to collect money effectively from depositors and money is given to the borrowers.

There is also conversion of short term loans to long term loans done by them.

Non depository institutions include insurance companies, securities firm, pension funds and finance companies. The premium of people is pooled and it is saved by preventing any financial disaster.

Pension funds collect the money of workers, businesses for investing to provide money after the workers retire. Indirect financing includes selling financial securities to that has particular set of characteristics into another one with different set of characteristics.